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Hirt v. Equitable Retirement Plan For Employees

July 20, 2006

STEFANIE HIRT, ET AL., PLAINTIFFS,
v.
THE EQUITABLE RETIREMENT PLAN FOR EMPLOYEES, MANAGERS AND AGENTS, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Alvin K. Hellerstein, U.S.D.J.

OPINION AND ORDER GRANTING AND DENYING SUMMARY JUDGMENT

Plaintiffs are long-term employees, managers and agents of The Equitable Life Assurance Society of America ("Equitable"). They filed this lawsuit, for themselves and others similarly situated, to challenge changes by Equitable to its retirement plans. By a series of resolutions and notices, beginning November 1988 and over the next several years, Equitable announced changes in its plans, converting them from defined benefits based on an average of final years of compensation, to annually adjusted cash balance plans. Plaintiffs allege that the amendments (1) were put into effect without having given proper notice to all participants and (2) discriminate against older employees.

The pre-trial proceedings have been extensive. I granted Plaintiffs' motion for class certification, and certified the class alleged in the complaint and the adequacy of Plaintiffs as class representatives. The parties have conducted discovery of witnesses and experts, and I have conducted an evidentiary hearing of Defendants' procedures in delivering notices to participants. Both Plaintiffs and Defendants now move for summary judgment, and both sides represent that there are no triable issues of any material fact. Their briefs and submissions fully develop the issues and the few cases in this burgeoning area of pension practice.

For the reasons discussed in this Opinion, I hold that Equitable's amendments to its retirement plans do not discriminate against participants on account of age, but that Equitable's notice of December 1990 was materially defective, substantively and procedurally. Although Equitable's Summary Plan Description sent to all participating agents, employees and managers on December 10, 1992 substantially cured the deficiencies of content, the cure was made well after the effective date of change for employees and managers, and therefore could not validate the amendments previously intended for them. The earliest effective date of the amendments is fifteen days after the date of the notice, or January 1, 1993. As to agents, the 1992 Summary Plan Description constituted fair notice under ERISA.

Accordingly, I grant summary judgment for Plaintiffs, and I deny summary judgment for Defendants. However, the consequence of this decision requires additional resolution in order to become final, as described in the last paragraphs of this Opinion.

I. THE PRIOR PROCEEDINGS

Plaintiffs filed their class action complaint August 23, 2001. The first claim for relief alleged that, by reducing the rate of accruals based on age, the Plan violates ERISA's prohibition on reductions on account of age or service. 29 U.S.C. § 1054(b)(1)(H)(i) (2006). The second alternative claim for relief alleged that the change to the Cash Balance formula, which caused a significant reduction in the rate of future benefit accrual, was not provided to Plaintiffs with adequate notice. Id. § 1054(h). The third alternative claim for relief alleged that the application of the Cash Balance formula retroactively reduced accrued benefits. Id. § 1054(g). By stipulation filed April 18, 2002, the third alternative claim for relief was dismissed with prejudice.

Plaintiffs filed a motion to certify this action as a class action on April 10, 2002, pursuant to Rule 23 of the Federal Rules of Civil Procedure. Upon consent of the parties, and pursuant to Rule 53 of the Federal Rules of Civil Procedure, I appointed David S. Preminger as Special Master to make recommendations regarding class certification. (Order dated Sept. 6, 2002). Through his Revised Report and Recommendation filed October 31, 2002, and statements made before the Court at a hearing on October 29, 2002, the Special Master reported that although Plan participants had interests which diverged from those of the named Plaintiffs, class certification was nonetheless appropriate.

Plaintiffs filed an Amended Complaint on April 1, 2003, in response to the Special Master's Report, which alleges that (1) the implementation of the Cash Balance formula was ineffective due to inadequate notice, 29 U.S.C. § 1054(h); (2) the Cash Balance formula caused rate of benefit accruals to be reduced on account of age, id. § 1054(b)(1)(H)(i); (3) the degrandfathering of employees and managers was ineffective due to inadequate notice, id. § 1054(h); and, in the alternative, (4) the de-grandfathering was ineffective as to five class representatives who did not receive the notice, id. § 1054(h); 29 C.F.R. § 2520.104b-1(b).

I granted Plaintiffs' motion for class certification. (Order dated May 22, 2003, filed May 23, 2003). Pursuant to Rules 23(b)(1) and 23(b)(2) of the Federal Rules of Civil Procedure, I certified a class consisting of all current and former Plan participants, whether active, inactive or retired, and their beneficiaries and estates, whose accrued benefits or pension benefits are based on the Plan's Cash Balance formula. I also certified a sub-class, under the third claim for relief alleging ineffective notice of de-grandfathering, consisting of all current and former Plan participants, whether active, inactive or retired, their beneficiaries or estates, who were subject to the "de-grandfathering amendment" of the Plan.

Defendants moved for summary judgment July 30, 2003, arguing that the statute of limitation barred Plaintiffs' claims. I denied Defendants' motion, finding questions of fact regarding when notice was given and when Plaintiffs should have been aware of the alleged injury. (Order dated Oct. 24, 2003, filed Oct. 27, 2003).

Plaintiffs moved for summary judgment on liability July 1, 2004, this time to adjudicate the issues of Defendants' liability, and Defendants cross moved for summary judgment to dismiss the Amended Complaint. The parties appeared before me for oral argument October 14, 2004. I offered the parties the option of consenting to my hearing the motions in a bench trial pursuant to Rule 52 of the Federal Rules of Civil Procedure (Tr. 2), but the parties declined (Tr. 3, 4). Finding significant factual disputes, I reserved decision and ordered the parties to undertake depositions and file supplementary submissions. (Tr. 91-95). Upon consideration of the supplementary submissions, I denied both motions, again finding significant factual and legal disputes. (Order dated Mar. 31, 2005, filed Apr. 17, 2005).

The parties met with me in conference April 19, 2005, at which I proposed an evidentiary hearing to resolve the major outstanding issue of fact, Equitable's notice procedures, followed by renewed summary judgment motions. By Joint Scheduling Order, the parties agreed to further depositions, an evidentiary hearing, and renewed summary judgment motions. (Order filed June 22, 2005). The parties filed the instant, renewed motions for summary judgment on July 12, 2005. They appeared for an evidentiary hearing on August 3, 2005, August 4, 2005, and August 8, 2005, and for oral argument on September 15, 2005. I granted Plaintiffs' motion for leave to supplement the record following those proceedings (Order dated Sept. 20, 2005), and denied Defendants' motion to strike the supplemental submissions (Order dated Oct. 31, 2005, filed Nov. 11, 2005).

II. SHIFTING GROUND IN PENSIONS

Equitable for some time had three, separate retirement plans for its employees, managers and agents. Each plan was based on a formula that multiplied the number of years of a participant's credited service, times a base made up of an average of the participant's highest monthly earnings for any sixty consecutive months during a 120-month period, to yield a defined benefit at normal retirement age. The defined benefit was then compared to the participant's social security benefit, and the excess of the defined benefit was paid to the participant after retirement. The principal feature of such defined benefit plans was to weight the compensation earned by participants in their late, pre-retirement years, for these, generally, were the years of highest salaries or commissions. Equitable's plans, and similar defined benefit plans in other companies, thus rewarded the continued loyalty and the continuing service of its employees.

Defined benefit plans that satisfied the criteria provided by the Internal Revenue Code entitled participants to tax deferral of benefits until actual pay-out. Defined benefit plans' pension benefits must vest after five years, and accrued benefits must be between the 3% minimum rule and the 133 1/3 % maximum rule, in order to qualify for tax benefits on their contributions. Employers assume the risk of estimated investment returns, so that, subject to opinions of licensed actuaries, investment returns reasonably expected on the aggregate of such employers' contributions could increase, or decrease, employers' obligations.

In defined contribution plans, in contrast, each employee has an individual account consisting of contributions actually made by the employer and, depending on the plan, contributions made by the employee. The employee's pension is then paid out of this individual account, and the employee, rather than the employer, has the risk of increase or decrease in value for the account. Individual Retirement Accounts and "401-Ks" are tax advantaged examples of defined contribution plans. Typically, they lack the leveraging features of defined benefit plans, but provide certainty of ownership to employees.

By the late 1980's, particularly in light of changing economic conditions and uncertain stock markets, companies became interested in reducing their obligations under defined benefit plans. As the nation's work force became more mobile, the interest of participants in earlier vesting and more flexible portability of their retirement benefits also grew. Cash balance plans were introduced to satisfy these interests. Cash balance plans typically are a hybrid of traditional defined benefit and defined contribution plans, but are dealt with by the statutes as a species of defined benefit plans. Under these plans, each participating employee has an account in which the employee earns hypothetical pay credits based on the employee's wages, salary or other compensation, supplemented by hypothetical interest credits. Like defined benefit plans, the employees' cash accounts are hypothetical, reflected by balance sheet obligations of the sponsoring company and such reserves as may support those obligations under generally accepted accounting principles or governing statutes, regulations, or provisions of a collective bargaining agreement. Like defined contribution plans, cash balance plans tend to feature earlier vesting and portability, that is, the employee does not lose his/her cash account if s/he leaves his/her job before reaching retirement age. Cash balance plans in themselves are not controversial; it is the conversion from defined benefit plans to cash balance plans that has given rise to litigations like this one. See Campbell v. BankBoston, N.A., 327 F.3d 1, 8 (1st Cir. 2003).

A. The 1988 Amendment Affecting Employees and Managers

i. The Resolution of November 1988

By resolution of November 17, 1988 (the "1988 Resolution"), Equitable's Board of Directors, citing the recently enacted Tax Reform Act of 1986,*fn1 resolved to merge its separate retirement plans for its employees and managers into one plan, and to amend the plan by changing the then existing Final Average Monthly Earnings formula to a Cash Balance formula, effective January 1, 1989. Pursuant to the Cash Balance formula, a hypothetical Cash Account was to be created for each participating employee and manager of Equitable, and Equitable, upon the participant's retirement, would be obligated to provide to the participant either the lump sum of the account or an annuity of equal value. Provisions for pay out were provided also for participants when employment was terminated before reaching retirement age. The Cash Account for each participant was to be an accumulation of hypothetical monthly contributions, measured by 5% of the participant's annual compensation up to the participant's Social Security yearly (FICA) benefits base, and 10% of the excess of the employee's compensation over such base, plus minimum, undefined, monthly interest on such sums. The resolution of Equitable's Board also provided for a more liberal vesting of benefits, to occur upon five years of credited service, and for the cessation of cost-of-living adjustments ("COLAs") for retirement benefits accruing after December 31, 1988.

The resolution of Equitable's Board provided that the amendment should not affect existing participating employees and managers. All plan participants as of December 31, 1988 were "grandfathered," so that the benefits accrued under the employees' or managers' plan as of December 31, 1988, including post-retirement COLA benefits, were frozen. These Earned Benefits were to be summed with the greater of (1) the benefits for employment after December 31, 1988 as calculated using the Final Average Monthly Salary formula using total years of Credited Service, without COLA benefits; or (2) the benefits for employment after December 31, 1988 as calculated using the Cash Balance formula without COLA benefits.

ii. The Notice of December 1988

Equitable issued notice of its merged and amended retirement plans for employees and managers by a one-page letter dated December 5, 1988, addressed to "All Employees and Agency Force Managers," and an attached ten-page brochure of highlights, entitled "A Plan for the Future" (the "1988 Notice"). Equitable's "objective" in making the change, the brochure stated, was "to comply with changes mandated by current Federal law, continue to provide significant retirement security, and do so with prudent financial management." Accordingly, the brochure stated, Equitable designed its new retirement plan to be "more responsive to the changing needs of today's workforce," with Cash Accounts "in which [the] retirement benefit grows over time" as "Pay Credits," based upon participants' monthly pay, credited by Equitable, plus interest set "at a competitive rate each year." Upon vesting, the brochure stated, the employee will have the right, when leaving the company, to take his accumulated account "as a lump sum or have it paid as a monthly annuity at retirement." The brochure purported to "provide only a preview of the new features" and acknowledged that it could not "answer all of [the participant's] questions." The brochure indicated, rather, that more detailed information would be provided in early 1989.

Equitable's brochure advised employees and managers that they would benefit by becoming participants of the new plan on the first of the month following employment or appointment, and by more liberal vesting provisions that provide for vesting after five years instead of ten years of Credited Service. The brochure stated that the amount of Equitable's Pay Credits to participants' hypothetical Cash Accounts would be 5% of pay (inclusive of overtime and incentive compensation) up to the Social Security wage base (the point at which FICA withdrawals stop), and 10% above that wage base, plus an Interest Credit, described generally as a "competitive interest rate" to be set annually. The brochure did not state who would determine the interest rate or how it was to be determined, but stated that the interest rate in 1989 would be 8.5%. The brochure further explained that COLAs would not be applied to benefits accrued after December 31, 1988. It explained that the elimination of COLA was consideration for the added "flexibility and security" provided by "the value of the cash payment available under the new Cash Account, plus the higher potential benefits provided under the amended Plan formula."

The brochure advised current plan participants that they would not be prejudiced by the new Cash Account plan, but rather that the benefits of all current plan participants under the new plan would be "at least equal" to that which they would have been under the "current formula," except that there would not be any post-retirement adjustments for COLA for benefits earned after December 31, 1998. Retirement benefits for grandfathered participants would be comprised of two components. The value of Credited Service through December 31, 1988, called the Earned Benefit, was to be calculated as if the employee left Equitable on December 31, 1988, including COLA benefits, and the benefits were to be paid as a monthly annuity after retirement. Additionally, the grandfathered participant would be eligible for benefits equal to the greater of two amounts: either (1) the Cash Account balance accumulated on the basis of employment after December 31, 1988, or (2) benefits that would have been accumulated under the old formula for continued service, but without COLA. The sum of the two components-the Earned Benefit and the greater of the post-1988 benefits under the old or new plan-would constitute the participant's retirement benefits, and become an annuity payable over the member's life or payable, in part, as a lump sum. Alternatively, the brochure described the new plan as applied to grandfathered members as affording three possible payments: (1) the Earned Benefits plus COLA; and (2) the Cash Account balance as a lump sum or annuity, but without COLA; and, if the benefits under (2) were less than they would have been under the old plan, then (3) the hypothetical benefits under the old plan for the total years of Credited Service, less the sum of benefits under (1) and (2), without COLA.*fn2

B. The 1989 Resolution Affecting Interest Rate

A year later, by resolution dated December 14, 1989 (the "1989 Resolution") and a letter dated January 17, 1990, Equitable quantified the interest rate that it would use to add Interest Credits to participants' Cash Accounts: the average rate for one-year Treasury Bills for the twelve months preceding December every year, rounded to the nearest twenty-five basis points. For the year 1990, the rate was to be 8.0%.

C. The 1990 Amendment and Notice Affecting Grandfathering

i. The Resolution of November 1990

By resolution of November 15, 1990 (the "1990 Resolution"), Equitable's Board of Directors resolved to limit the grandfathering provision establish in 1988 to a more select group of participants, specifically to those who had "either attained age 50 or completed 20 years of vesting service by December 31, 1990." The resolution cited a memorandum dated November 7, 1990 for further details.

ii. The Notice of December 1990

By a one-page notice dated December, 1990 addressed to "Participants in the Equitable Retirement Plan for Employees and Managers," (the "1990 Notice"), Equitable announced an amendment, effective January 1, 1991, to limit grandfathering. Thenceforth, after December 31, 1990, only those participants who either had attained age fifty or had completed twenty years of service by December 31, 1990 could receive benefits under the grandfathering provision. For all other participants, Equitable advised, retirement benefits earned after 1990 would be paid only according to the Cash Account formula. Participants were referred to an attached one-and-a-half page Benefits Update, dated December 4, 1990, for more information.

The Benefits Update referred, in turn, to the notice given by Equitable two years earlier, in December 1988, for a description of the change to Cash Accounts. The Benefits Update itself advised that, effective January 1, 1991, the "special 'grandfathering' provision" described in the 1988 Notice was to be continued only for those participants who either had attained age fifty or had completed twenty years of Credited Service. For all others, benefits earned after 1990 were to be determined only under the Cash Account formula. For more information, participants were invited to telephone the "Retirement Plan Unit" at New York City headquarters. A telephone number was given. The cover notice and the Benefits Update did not themselves provide further descriptive details of the Cash Balance plan or interest rate methodology.

D. The 1992 Amendment and Notice Affecting Agents

i. The Resolution of September 1992

By resolution of September 17, 1992 (the "1992 Resolution"), Equitable's Board of Directors resolved to merge its retirement plan for agents into its plan for employees and managers, and to provide that its agents also would have their retirement benefits determined under its Cash Balance plan. The resolution referred to a memorandum of September 8, 1992 for details. The September 8, 1992 memorandum explained that certain agents-those who were at least fifty years old or had at least twenty years of service as of December 31, 1992, and "Hall of Fame" agents who were at least forty years old as of that date-would be grandfathered under the old plan for agents, and that grandfathered agents would be eligible for the higher of benefits under (1) the pre-1993 agents' plan, or (2) the Cash Balance plan, but that there would no post-retirement COLA for benefits accrued after 1992. The grandfathered group was estimated to constitute 27% of total plan participants. The extension of the Cash Balance plan to agents was estimated to decrease Equitable's GAAP expenses by $1.8 million.*fn3

ii. The Notice of November 1992

Equitable announced the changes to its agents on November 24, 1992 (the "November 1992 Notice") by a one-and-a-half-page letter addressed to "All Equitable Agents." The changes, it told its agents, would become effective January 1, 1993, and were intended as "an innovative approach to building [the participant's] financial security, . . . designed to be more responsive to the changing needs of today's work force." The Cash Balance formula was described as monthly Pay Credits based on 5% of monthly compensation up to the level of FICA, and 10% of compensation thereafter, plus Interest Credits "at a rate determined at the beginning of each year," guaranteed for that year. Agents with five or more years of service who left the company could take their vested Cash Accounts with them, or leave their accounts in Equitable's retirement plan. As for existing benefits before the Cash Balance plan became effective, they were to be "frozen" and paid following retirement, provided the participant had at least five years of service before retirement. Finally, the notice to agents stated also that there would be a grandfathering provision for those "nearing retirement," but did not identify which agents would be grandfathered. Participants were referred to a booklet that was to be distributed in early December for details. The November 1992 Notice did not mention the elimination of COLA, and did not quantify the interest that was to be paid.

E. The Notice of December 1992

Under cover of a December 10, 1992 letter, Equitable delivered an extensive Summary Plan Document ("SPD"), entitled "Benefits: Retirement Plan" (the "1992 Notice"), to all associates-employees, managers and agents. The cover letter directed questions to Human Resources or the Operations Managers. The SPD contained three sections. Section I pertained to the Cash Balance Account; Section II discussed the Pre-1989 Formula for employees and managers; and Section III discussed the Pre-1993 Formula for agents.

i. SPD Section I-The Cash Balance Account

For each associate (employee, manager or agent), on the first day of the month on or after reaching age twenty-one and completing one year of service, a Cash Balance Account was to be established. The account was not to be an actual account holding actual contributed amounts, but was to be established "for record-keeping purposes only," without withdrawal or borrowing rights for the participant prior to retirement or termination of employment. Equitable was to incur the obligation to contribute Pay Credits to the account, at the 5% and 10% contribution levels previously discussed, plus Interest Credits each month. Earnings, as the basis for Equitable's contribution obligations, were defined broadly, to include overtime, shift differentials, and short-term incentive compensation and, for agents, various categories of commissions. Equitable obligated itself to credit interest monthly, at a rate established in advance each year, to be applied to the Cash Balance as of the first day of each ensuing month. The interest rate was to be the average of one-year Treasury Bills for the twelve-month period ending November the prior year, and that rate was guaranteed for the entire year. By way of illustration, according to the SPD, the interest rates Equitable contributed between 1989 and 1992 varied between 8.5% and 5.75%. The SPD presented a table depicting retirement benefits under the Cash Balance plan for participants with five to forty years of participation in Equitable's plans. The table assumed an annual salary of $30,000 and calculated retirement benefits projected on the basis of three sets of annual interest rates: 4%, 6%, and 8%.

Participants were to be vested after five years of service, or upon reaching sixty-five or dying during active service. Retirement was to be available at age fifty-five if the participant had ten years of service, or upon the participant's reaching age sixty-five. On the first day of the first month following retirement, the Cash Account could be paid as a lump sum, or as a monthly annuity, and participants could withdraw their Cash Account upon earlier termination of employment. Cash Account payments were not adjusted for COLA.

ii. SPD Section II-The Pre-1989 Formula for Employees and Managers

For employees and managers who were participants in the retirement plan as of December 31, 1988, and continued service after that date, the SPD explained their eligibility for two categories of benefits upon retirement or earlier termination of service: the frozen annuity benefit as of December 31, 1988, and the Cash Account thereafter. The SPD also explained the availability of post-retirement COLAs for both categories of benefits.

The Pre-1989 Formula calculated the frozen annuity benefit as a multiple of the employee's or manager's Final Average Monthly Earnings and years of Credited Service, less the Social Security offset. The "Final Average Monthly Earnings" were calculated as the average of highest monthly earnings for any sixty consecutive months during the 120-month period ending December 31, 1988, or for the entire work period if less than 120 months were worked. Only Credited Service counted toward the benefit calculation, and an employee or manager had to be over twenty-five years old before 1985, and over twenty-one years old after 1985, for service to be credited. The years of Credited Service were used to calculate a "Service Reduction Factor," so that, if the employee or manager had worked fewer than thirty years, the Final Average Monthly Earnings were multiplied by a Service Reduction Factor equal to the fraction of Credited Service years divided by thirty. The "Social Security Offset" was calculated as 80% of the employee's or manager's Estimated Social Security Benefit, multiplied by a factor known as the "PIA Reduction Factor." The "Estimated Social Security Benefit" was calculated either assuming continued employment at the employee's or manager's 1988 wage until age sixty-five, or, upon the employee's or manager's request, using actual Social Security earnings history at retirement. The "PIA Reduction Factor" was calculated by dividing the employee's or manager's years of Credited Service as an employee or manager as of December 31, 1988 by the total years of Credited Service as an employee, manager, or agent if the employee or manager had continued to work until age sixty-five. The actual Pre-1989 Formula used to calculate the frozen benefits was stated as:

(60% of Final Average Monthly Earnings) x (Service Reduction Factor) -- (Social Security Offset) = Retirement Benefit under Pre-1989 Formula.

The introduction of the Cash Account froze this base calculation for participants as of December 31, 1988, except to the extent that the formula may have been applied to later earnings for grandfathered employees and managers.

Examples were provided for a participant who retired at age sixty-five with twenty-four years of Credited Service as of December 31, 1988, and Final Average Monthly Earnings of $2,000. That was compared to a minimum benefit formula, a formula helpful to those earning less than $20,000 per year. Tables were also provided for early retirement at age fifty-five or older. Those retiring early were entitled to receive a temporary annuity that supplemented the early retirement benefit until the participant reached age sixty-five, and examples were provided for that.

Benefits accrued before December 31, 1988 were eligible for post-retirement COLAs, up to an annual 6% increase or decrease, based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers in the United States for the twelve-month period ending September 30th of a given year, applied after January 1 of the following year. Benefits accrued after December 31, 1988 were not eligible for COLAs.

iii. SPD Section III-The Pre-1993 Formula for Agents

For agents who were participants in the retirement plan as of December 31, 1992, and continued service after that date, the SPD explained their eligibility for two categories of benefits upon retirement or earlier termination of service: the frozen annuity benefit as of December 31, 1992, and the Cash Account thereafter. The SPD also explained the availability of post-retirement COLAs for both categories of benefits.

The SPD described the Pre-1993 Formula as a "Career Accrual Formula." An agent's annuity benefit was calculated by adding a percentage of the agent's Annual Total Commissions for each year of participation from 1984 through 1992 to the agent's January 1, 1984 Accrual Base, less the estimated Social Security benefit. Specifically, the SPD presented the following formula for calculating monthly benefits under the Pre-1993 Formula:

(January 1, 1984 Monthly Accrual Base) [(1/12) x (2% of Annual Total Commissions for each year of participation 1984-1992)] (Ad-Hoc COLA Adjustments) -- (Social Security Offset) = Retirement Benefit under the Pre-1993 Formula.

The Accrual Base was calculated as the Minimum Guaranteed Benefit, plus two-thirds of the Estimated Social Security Benefit, multiplied by the PIA Reduction Factor, all as of December 31, 1983. The Minimum Guaranteed Benefit was defined as the monthly benefit earned under the Final Average Pay Formula in effect for agents until December 31, 1983. The PIA Reduction Factor was calculated as the fraction of Credited Service as of December 21, 1992 over total years of Credited Service the agent would have worked until age sixty-five. The AdHoc Adjustments were detailed for the relevant years, ranging from 0% in 1984 to 11.8% in 1990. The Social Security Offset was calculated as two-thirds of the estimated Social Security Benefit multiplied by the PIA Reduction Factor.

The SPD included an example of the calculation of benefits under the Pre-1993 Formula. It assumed the agent was fifty-six years old, with twenty-seven years of Credited Service as of December 31, 1992. It assumed an Accrual Base of $1,400 per month, Annual Total Commissions increasing from $40,000 to $48,000, and an estimated Social Security Benefit of $1,120 per month. The SPD calculated a monthly benefit under the Pre-1993 Formula equal to $1,894, which would be in addition to benefits subsequently earned in the Cash Account.

The SPD explained that early retirement was an option under the Pre-1993 Formula. Retirement was available as early as fifty-five, as long as the agent had completed at least ten years of Vesting Service. If an agent were to retire before age sixty-five, their monthly annuity benefits would be reduced by a factor, according to the number of vested years. The SPD included examples of the calculation of reduced early retirement benefits under the Pre-1993 Formula.

Benefits accrued before December 31, 1992 were eligible for post-retirement COLAs, up to an annual 6% increase or decrease. In addition, a 2% step-up increase applied to benefits earned before January 1, 1984, whereby for each year for the first ten years of retirement an additional 2% would be added to the COLAs. Benefits accrued after December 31, 1992 were not eligible for COLAs.

iv. SPD-Benefits for Grandfathered Participants

The SPD described the retirement benefits for participants who were eligible for grandfathering under the Pre-1989 Formula for Employees and Managers and under the Pre-1993 Formula for Agents. Grandfathered participants would not lose eligibility for benefits under the pre-cash-balance plans. However, the benefits accruing after the effective date of the Cash Balance plan for their respective group, either in the form of Cash Account benefits or Additional Grandfather Benefits, would not be eligible for post-retirement COLAs.

1. Benefits for Grandfathered Employees

The SPD provided that employees who were participating in the plan as of December 31, 1988, and who were at least fifty years old on December 31, 1990 or who had completed twenty or more years of Vesting Service by December 31, 1990, were grandfathered under the Pre-1989 Formula. The SPD presented the formula for calculating grandfathered employees' retirement benefits as:

(Frozen Annuity Benefit under the Pre-1989 Formula on December 31, 1988 post-retirement COLA) (Cash Balance Account) (Additional Grandfather Benefit) = Retirement Benefit under the Employee Grandfather Provision.

A grandfathered employee was eligible for the Additional Grandfather Benefit if the benefits the employee would receive from the Frozen Annuity Benefit and the Cash Balance Account were less than those the employee would have received under the ...


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